Soothing words that fail to settle nerves......

Tuesday 15th April 2015

 Soothing words that fail to settle nerves......

"New York Fed chief pledges caution as interest rate rise looms" , Ambrose Evans-Pritchard, The Daily Telegraph, p.B5

Bill Dudley, head of the New York Fed, is probably genuine when he says that the Federal Reserve is aware of its special duty of care for the whole world. That being so, the institution will do its best to avoid a meltdown in emerging markets once the inevitable US rate-raising cycle takes hold. Good to know, one imagines those emerging nations might think, although Mr Dudley did not specify how the Fed might alleviate the problems caused by rising rates and a stronger dollar to countries carrying so much dollar-denominated debt.

If there was any comfort to be taken from these comments, what Mr Dudley went on to say would have been far less encouraging. For him, the course for US rates revolves  around the level of inflation and all measures of that have been obscured by a one-off collapse in oil prices. In addition, weak 1Q data are largely the product a bad winter and when inflation returns to around 2%, he foresees interest rates of 3.5%. Despite helpful promises, emerging nations should be aware of the Fed's priorities.